Executive summary

Agriculture is a key sector for the Philippines, at almost one-third of total employment and one-tenth of GDP. Agricultural land resources are under strain from frequent natural disasters, rising population and urbanisation; climate change is projected to have a significant impact on land use and yields.

Despite the Philippines’ recent economic success, the agricultural sector lags behind other Southeast Asian countries in terms of production and productivity growth. The Philippines halved the proportion of undernourished from 26% in 1990-92 to 12% in 2012-14, although this may have increased to 14% in 2014-16. Progress in reducing the absolute number of hungry people has been slow and the incidence of malnutrition remains high: stunting still affects close to 30% of children.

Key agricultural policy objectives have focused on food security and poverty alleviation through guaranteeing a stable supply of food at affordable prices. The goal of self-sufficiency in rice has driven a range of policy measures supporting rice producers and an increased share of rice in total production – in contrast to diversification towards higher value commodities typical of other countries in the region.

In 1988, the Philippines undertook an ambitious agrarian reform that covered close to three-quarters of the country’s total agricultural land. By end-2015, the redistribution of land was almost complete, but property rights remain to be settled, with almost half of the reform beneficiaries still covered by collective ownership certificates. Various restrictions on land-market transactions and insecure property rights have limited on-farm investment and undermined the expected economic benefits of the reform. Over this period the total number of farms increased and the average farm size fell from 2.8 ha to 1.3 ha.

Agricultural policies in the Philippines are designed and implemented by a complex system of institutions. By number of staff the Philippines has one of the largest agricultural research systems in Asia, but related public expenditures have been low until recently and efficiency is hampered by the system’s complex structure and narrow focus. The agricultural extension system and its financing suffers from lack of co-ordination between the Department of Agriculture (DA) and local governments; local governments lack incentives to spend on trained and qualified extension staff; a commodity-by-commodity approach dominates, limiting efficiencies; and the linkage to the research and development system is weak. This also represents a major challenge for implementing climate change adaptation actions at the local level.

The level of support to agriculture as measured by the share of policy-driven transfers from consumers and taxpayers in gross farm revenues averaged 25% in 2012-14, higher than the OECD average of 18% and highest among all emerging economies covered by the OECD support indicators.

Market price support (MPS) is the dominant form of support to Philippine producers. In addition to rice, substantial levels of support are provided to sugarcane and animal products, in particular through high import tariffs. The high level of MPS is an implicit tax on consumers and the food processing industry, at 25% on average in 2012-14. Analysis suggests that price support for rice increases undernourishment in the Philippines by 3.2 percentage points or 3.2 million people.

The level of total support, through market price support and budgetary transfers, to the Philippine agricultural sector in 2012-14 was equivalent to 3.3% of GDP, almost five times the OECD average of 0.7% and the second highest across all countries measured. This contrasts with the sector’s relatively poor performance in productivity growth, highlighting the need for resources to be applied more effectively.

Key policy recommendations

I. Improve agricultural policy performance to enhance the sector’s long-term productivity growth

Re-focus the policy package to improve food security

  • Enhance diversification of production, consumption and income by taking away commodity-specific incentives.

  • Gradually remove restrictions on rice imports.

  • Replace the National Food Authority’s (NFA) subsidised rice sales with conditional cash transfers and food vouchers.

  • Transform the NFA into a market-neutral agency managing emergency stocks.

Re-focus agrarian land policies from land distribution to securing property rights through land governance reforms

  • Establish confidence in land ownership rights.

  • Enhance post-reform consolidation of farm operations.

  • Develop a long-term strategy for farm restructuring.

Focus budgetary support on long-term structural reform

  • Re-allocate budgetary transfers from variable input subsidies to support sustainable productivity growth in the long term.

  • Improve supply chain connectivity.

  • Avoid commodity-specific budgetary allocations.

Re-orient agricultural knowledge systems

  • Improve the institutional design of agricultural research and development, agricultural education and extension services through diminished institutional complexity, stronger vertical and horizontal collaboration, reduced focus on rice and increased expenditures.

  • Re-orient the focus of agricultural education and extension services to improve farm management skills.

II. Assess the effectiveness of current risk management tools and of alternatives to them

  • Adopt a holistic approach to risk management with a policy focus on catastrophic risks.

  • Assess insurance and cash-transfer schemes that can encourage adaptive decisions.

III. Improve the agricultural sector’s capacity to adapt to climate change

  • Make climate-adaptation policy objectives consistent across programmes and institutions.

  • Develop clear guidance on climate-adaptation “tagging”.

  • Make sure that new infrastructure projects are “climate-proof”.

  • Provide reliable climate information to farmers.

  • Encourage more efficient use of water.

IV. Improve agricultural institutions and governance systems

  • Strengthen institutional co-ordination between the DA and other relevant departments and institutions that implement programmes supporting agriculture.

  • Strengthen transparency and accountability of publicly-funded programmes.

  • Accelerate efforts to build a solid policy-relevant statistical system.

  • Embed monitoring and evaluation mechanisms into the policy process.